federal reserve http://www.wisebread.com/taxonomy/term/7631/all en-US Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/donald_trump_98978789.jpg" alt="Donald Trump could bring higher interest rates and inflation" title="" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>In a matter of weeks, America will have a new President, and people are already speculating as to what a new man in the White House will mean for the economy.</p> <p>Donald Trump outlined a series of policy proposals on the campaign trail, including some that, according to economists, may impact inflation and interest rates. This comes at a time when the Federal Reserve has been hinting at raising interest rates for a while. So if all of this happens, what should you do with your money? Here are some ideas.</p> <h2>If There's Inflation</h2> <p>Ifd the federal government opens up the fiscal spigot, inflation is sure to follow.</p> <h3>1. Take a Look at Gold</h3> <p>Gold has long been a popular investment for those seeking protection against inflation, especially during times of political and global uncertainty. Prices for gold spiked in the immediate aftermath of Trump's election, but are still quite low from a historical standpoint.</p> <p>There are several ways to purchase gold. You can buy gold bars or bullion and store it, or purchase shares of companies involved in gold mining. There are also exchange-traded funds (ETFs) that track the performance of gold or gold-related industries.</p> <h3>2. Get Into TIPS</h3> <p>The U.S. Treasury offers something called Treasury Inflation-Protected Securities, or TIPS. These are pegged to the Consumer Price Index, so when the index rises, the value of the investment rises with it. These are solid, low-risk investments that are perfect for when inflation is a possibility, and they are exempt from state and local income taxes. It's also possible to own TIPS in a retirement fund, via an ETF or mutual fund.</p> <h3>3. Invest in Commodities</h3> <p>In addition to gold, there are other commodities that can be used as a hedge against inflation. Many commodities, including oil, wheat, and even live cattle naturally rise with inflation. If you're unsure of which commodities to buy, consider looking at a fund or ETF that invests in commodities broadly. The PowerShares DB Commodity Index Tracking Fund [NYSE: <a href="http://www.google.com/finance?cid=722064">DBC</a>]) and the Fidelity Series Commodity Strategy Fund [NYSE: <a href="https://www.google.com/finance?q=FCSSX&amp;ei=4G48WJC_BdWNmAHcobLABw">FCSSX</a>] are two examples.</p> <h3>4. Get Real With Real Estate</h3> <p>Real estate is another area that often does well during an inflationary period. There are many ways to obtain real estate, either by purchasing property directly, or by buying shares of real estate investment trusts, or REITs. The caveat here is that if interest rates rise, then the cost of a mortgage to purchase real estate will also go up. So it may be smart to get in now while interest rates are still at historic lows.</p> <h2>If Interest Rates Rise</h2> <p>The Federal Reserve is expected to tick interest rates up a bit soon, while Trump's economic proposals could accelerate that process.</p> <h3>1. Invest in Banks</h3> <p>Banks generally do better when interest rates are higher than they are now. Right now, these companies have a low &quot;net interest margin&quot; &mdash; the difference between the interest they earn and the interest they pay out. Higher rates will increase this margin, thus increasing the bank's profitability.</p> <h3>2. Lock in a Fixed Rate</h3> <p>If you have a mortgage with an adjustable rate, now is the time to lock into something more stable, before interest rates rise. Convert your mortgage to a fixed-rate loan now, while interest rates are low. If you don't do this, your rate could adjust upward to a level that you may find unsustainable.</p> <h3>3. Switch to Short-Term Bonds</h3> <p>If interest rates are about to go up, you don't want your money tied up in something that's not paying a high rate. Placing your money in shorter term bonds and bond funds will allow you to remove your money earlier and then reinvest it in something with a higher return once rates rise. Long-term bonds do pay a higher rate than short-term bonds, but you lose flexibility.</p> <h3>4. Bolster Your Cash Holdings</h3> <p>With interest rates at ultralow levels, there hasn't been much incentive to hold on to a lot of cash. But if interest rates rise, you may find it's worth it to have a little more cash on hand, as it will generate some income for you. Stocks and other investments will probably still be more lucrative, but higher interest rates means there won't be as much downside to having more liquid savings, and it may give you more peace of mind.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-money-moves-for-the-newly-independent">8 Money Moves for the Newly Independent</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-investments-that-may-soar-during-trumps-term">8 Investments That May Soar During Trump&#039;s Term</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-best-money-management-tips-from-john-oliver">7 Best Money Management Tips From John Oliver</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stag-hyperinflation">Stag-hyperinflation?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Financial News bonds donald trump federal reserve gold inflation interest rates investing president Wed, 30 Nov 2016 12:00:11 +0000 Tim Lemke 1843966 at http://www.wisebread.com 4 Things You Need to Know About the Federal Reserve http://www.wisebread.com/4-things-you-need-to-know-about-the-federal-reserve <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/4-things-you-need-to-know-about-the-federal-reserve" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/000073573727.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The mention of the Federal Reserve brings to many Americans the image of a super powerful organization in charge of keeping the economy operating smoothly. And to a certain extent that isn't too far from reality: The Fed develops and implements economic and monetary policies that affect not only U.S. citizens, but also individuals around the world.</p> <p>Let's take a closer at what is the Fed, what it does, and how those actions impact people everyday.</p> <h2>What Is the Fed?</h2> <p>Created by the U.S. Congress on December 23, 1913, the Federal Reserve System became the first formal organization to study and implement monetary policy. In other words, it is the central bank of the United States.</p> <p>Currently there are <a href="https://www.federalreserveeducation.org/about-the-fed/structure-and-functions/districts/">12 regional Federal Reserve Banks</a> located throughout the nation in major cities, including Boston, Dallas, and San Francisco. Each one of these locations serves a district formed by entire or portions of several U.S. states and territories. For example, the St. Louis Federal Reserve Bank serves the Eighth Federal Reserve District, which consists of Arkansas and portions of six other states: Missouri, Mississippi, Tennessee, Kentucky, Indiana, and Illinois.</p> <h2>Who Makes Up the Fed?</h2> <p>While the most well-known figure of the Fed is the chairman of the Board, currently <a href="https://www.federalreserve.gov/aboutthefed/bios/board/yellen.htm">Janet L. Yellen</a>, the Fed is headed by a Board of Governors. Each one of the seven members of the Board of Governors is appointed by the president and serves for a 14-year term. The board is led by a chairman and a vice chairman, both also appointed by the President but approved by the Senate for four-year terms.</p> <p>Some interesting facts about the Fed's chairmen:</p> <ul> <li>While Alan Greenspan is often thought to be the longest-serving chairman, that title goes to William M. Martin with 18 years and 9 months, from 1951 to 1970. (See also: <a href="http://www.wisebread.com/3-pearls-of-financial-wisdom-from-alan-greenspan?ref=seealso">3 Pearls of Financial Wisdom From Alan Greenspan</a>)<br /> &nbsp;</li> <li>The current vice chairman, <a href="https://www.federalreserve.gov/aboutthefed/bios/board/fischer.htm">Stanley Fischer</a>, is the author of many classic economic textbooks, which you may have used (or are currently using) in college.<br /> &nbsp;</li> <li>On February 3, 2014, Janet Yellen became the first female chair of the board of governors. She was also the first female vice chairman during her 2010&ndash;2014 appointment.<br /> &nbsp;</li> <li>The only former Fed chairman on social media is Ben Bernanke, who you can follow at <a href="http://twitter.com/benbernanke">@benbernanke</a> on Twitter.<br /> &nbsp;</li> <li>While a chairman is appointed for four years, some resign before their full term. For example, Roy Young resigned in the middle of his last four-year term.</li> </ul> <p>The Fed chairman has less unilateral power than the title might suggest. The chair counts as just one vote among the total seven votes of the board. Additionally, the chairman doesn't automatically become the chairman of the Federal Open Market Committee (FOMC), which is the Fed's monetary policymaking body formed by the seven members of the board and five Reserve Bank presidents on a rotating basis. The FOMC controls the federal funds rate, the primary lever of U.S. monetary policy. The Fed chair also only counts as one vote in the FOMC.</p> <h2>What Does the Fed Do and How Does It Affect You?</h2> <p>All of the responsibilities of the Fed fall under four general areas and they all have an effect on your financial activities.</p> <h3>1. Influence money and credit conditions in the U.S. economy in pursuit of full employment and stable prices.</h3> <p>By setting the target federal funds rate, the Fed establishes a benchmark for many short-term interest rates and, consequently, influences credit conditions throughout the economy. Through open market operations (the purchase and sale of U.S. government securities), setting the discount rate (usually lower than the federal funds rate and used for short-term loans from a Federal Reserve Bank to a regular bank), and minimum reserve requirements that banks must adhere to, the Fed aims to maintain its announced target federal funds rate.</p> <p>The Fed's monetary policy affects the supply of reserves in the U.S. banking system, indirectly affecting longer term interest rates, such as mortgages, and ultimately aiming to achieve full employment and low inflation.</p> <p><strong>How It Affects You</strong>: For good reason, economists keep a close eye on the target federal funds rate. It affects all forms of credit. For example, the interest rate on 30-year mortgage loans are highly correlated to the yield of a the U.S. Treasury 10-year bond, which depends on the Fed's target rate. Another example is that banks set the interest rates on their loans and deposit accounts based on the federal funds and discount rates. (See also: <a href="http://www.wisebread.com/6-important-things-you-need-to-know-about-the-housing-market-in-2016?ref=seealso">6 Important Things You Need to Know About the Housing Market in 2016</a>)</p> <h3>2. Supervise and regulate banks and other important financial institutions to ensure the safety of the nation's banking and financial system.</h3> <p>The Fed shares banking supervisory authority with other agencies, including the Office of the Comptroller of the Currency (OCC) in the U.S. Treasury Department. All nationally chartered banks have to be members of the Federal Reserve System and are subject to on-site examinations and off-site monitoring by their assigned Federal Reserve Bank. An example of an examination is the stress test, which requires financial institutions to have enough deposits on hand to withstand potentially large losses.</p> <p><strong>How It Affects You:</strong> The Fed establishes minimum requirements for banks to have cash on hand so that you can actually withdraw your money. If there were no minimum requirements, an unscrupulous bank could hold all deposits hostage by lending them all out. At the same time, it prevents banks from closing shop for the day for not having enough cash after a very large withdrawal.</p> <h3>3. Maintain the stability of the financial system by containing systemic risk.</h3> <p>No matter how much you diversify your portfolio, you can never get rid of systemic risk &mdash; the risk of collapse on the entire financial system. The Fed seeks to minimize that systemic risk as much as possible.</p> <p>The Fed can act as a &quot;lender of last resort&quot; to provide liquidity to the banking system during emergency situations. For example, on the day after 9/11 the Reserve Banks provided loans directly to depository institutions to restore confidence in the U.S. financial system and allow those institutions to meet their short-term obligations.</p> <p>Under the 2010 Dodd-Frank Act, the Fed has authority to subject systemically important nonbank financial institutions, such as bank holding companies with over $50 billion in assets, to heightened supervisory standards.</p> <p><strong>How It Affects You:</strong> You're willing to put your money in banks and invest in the stock market because you trust that the financial system is here to stay. The Fed plays a key role in maintaining that trust by by enabling banks to make payments even in the event of emergencies and regulating activities of key financial institutions.</p> <h3>4. Provide certain financial services to the U.S. government and other major official institutions and operate the nation's payment systems.</h3> <p>The Fed distributes all bills printed by the U.S. Bureau of Engraving and Printing in Washington, D.C., and Fort Worth, Texas, and all coins produced by the U.S. Mints in Philadelphia and Denver to its 12 Federal Reserve Banks. In turn, these 12 banks distribute all bills and coins to depository institutions throughout the U.S. to meet public demand.</p> <p>The Fed's Automated Clearinghouse (ACH) processes about three fourths of the <a href="http://www.frbsf.org/education/teacher-resources/what-is-the-fed/payment-services">nation's electronic transactions</a>, which include direct payroll deposits, Social Security benefit payments, and tax refunds. Additionally, the Federal Reserve Banks handle a wide variety of financial transactions for U.S. agencies, including processing of food stamps and handling of postal money orders.</p> <p><strong>How It Affects You</strong>: The Fed makes sure that your payroll deposit and tax refund arrives in a timely manner to your checking account. The Federal Reserve Banks virtually touch almost any payment that you send out or any deposit that you receive through a bank.</p> <p><em>What do you think is the most important role of the Fed? </em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/damian-davila">Damian Davila</a> of <a href="http://www.wisebread.com/4-things-you-need-to-know-about-the-federal-reserve">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-much-the-feds-interest-rate-hike-might-cost-you">This Is How Much the Fed&#039;s Interest Rate Hike Might Cost You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/3-reasons-the-fed-is-keeping-rates-low-and-what-it-means-for-you">3 Reasons the Fed Is Keeping Rates Low (And What It Means for You)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-bailbondsman-approach-part-deux-fiscal-stimulus-no-gonna-workie">The Bailbondsman Approach Part Deux: Fiscal Stimulus No Gonna Workie</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fed-raised-rates-then-something-weird-happened">The Fed Raised Rates — Then Something Weird Happened</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/savedplus-giving-away-3000-to-wise-bread-readers">SavedPlus Giving Away $3,000 to Wise Bread Readers</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking alan greenspan americans Ben Bernanke credit federal reserve janet yellen stanley fischer the fed u.s. economy Wed, 25 May 2016 09:00:09 +0000 Damian Davila 1717155 at http://www.wisebread.com The Fed Raised Rates — Then Something Weird Happened http://www.wisebread.com/the-fed-raised-rates-then-something-weird-happened <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-fed-raised-rates-then-something-weird-happened" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_concerned_computer_000038377234.jpg" alt="Woman wondering what happened after Fed raised rates" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>In December of last year, the Federal Reserve Board raised its benchmark Federal Funds Rate for the first time in more than a decade. Before the move, economists warned consumers to brace for a jump in the interest rates they pay on mortgage loans, auto loans, and credit cards.</p> <p>But a funny thing happened: pretty much nothing.</p> <p>Consumer interest rates haven't jumped much, if at all, since the Federal Reserve's move. That's good news for consumers who haven't had to pay more to borrow money. But it does lead to a big question: How long will the low interest rates on mortgage loans and other debt last?</p> <p>That's a question that no one can accurately answer. And, as now apparent, it's one that the Federal Reserve Board might be able to influence but won't be able to directly control.</p> <h2>The Fed's Move</h2> <p>The Federal Funds Rate is important: It affects the interest rates that banks charge on important consumer products such as mortgage loans, personal loans, auto loans, and credit cards. But the Federal Funds Rate only <em>influences </em>these rates. They don't directly set them.</p> <p>That's why consumers haven't seen, for instance, mortgage interest rates budge much from the historic lows at which they still remain.</p> <p>The Federal Reserve Board had set its funds rate at zero since 2008. Back then, the Fed took this move as a way to help the economy survive the Great Recession. But as the economy has slowly improved, members of the board's Federal Open Market Committee &mdash; which guides and sets the Federal Funds Rate &mdash; late last year decided it was finally time to increase this key rate.</p> <p>In December of last year, the Federal Reserve raised the funds rate by 25 basis points, moving it from 0% to 0.25%.</p> <p>And that's when financial experts predicted significant jumps in the interest rates that consumers pay. We're still waiting for those big jumps to happen. Why?</p> <h2>Influencing, Not Setting</h2> <p>It comes down to the difference between influencing and setting.</p> <p>Consider mortgage interest rates. Many believe that the Federal Reserve Board sets the interest rates that consumers pay on mortgage loans. It doesn't. Instead, mortgage interest rates are determined by mortgage backed securities, which are indirectly linked to the yield on 10-Year Treasury notes. When yields fall on Treasuries, so does the interest rate on mortgages. Treasury yields fall when demand for notes goes up, such as when the stock market declines (as happened in early 2016) or when the international economy stumbles (as has also happened).</p> <p>This doesn't mean that the Federal Reserve doesn't have any influence over whether mortgage rates rise or fall. After its meetings, the Federal Open Market Committee releases statements that list the opinions and feelings about the economy that its members hold. If the committee members say that the economy is strong &mdash; and their opinions about it are mostly positive &mdash; mortgage interest rates tend to rise.</p> <p>If the committee members instead express negative opinions about the economy, mortgage interest rates will usually fall.</p> <h2>Interest Rates Mostly Stable</h2> <p>Mortgage interest rates have remained at historically low levels for a long time. According to Freddie Mac, the average rate on a 30-year fixed-rate mortgage stood at 3.71% as of the week ended March 31. The average rate on a 15-year fixed-rate mortgage loan was at 2.98%. Last year the 30-year stood at 3.70% and the 15-year was 2.98%</p> <p>The New York Times on March 18 reported that the average interest rate on a 60-month loan for a new car stood at 3.15%. That's up only slightly from a year ago, when this rate was 3.11%.</p> <p>Variable-rate credit cards have seen their average interest rates rise from December of last year, but only slightly. Bankrate reported that as of Dec. 30 of last year, the average interest rate on a variable-rate card stood at 15.80%. As of March 30, the site said that this average had risen to 15.96%. (See also: <a href="http://www.wisebread.com/the-best-low-interest-rate-credit-cards?ref=seealso">Best Low APR Credit Cards</a>)</p> <p>So, yes, the Fed's rate hike might have had a slight impact on some interest rates but it has had no impact on others. The lesson here? Consumers should pay attention to what the Federal Reserve is doing when it comes to its Federal Funds Rate. And any increase in that rate might influence lenders and banks to raise their own rates.</p> <p>But consumers shouldn't panic, either, when the Fed does raise this benchmark rate. A higher Federal Funds Rate might not mean skyrocketing mortgage, auto, and credit card interest rates, because lots of others factors are at play.</p> <p><em>Have you benefited from low interest rates?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/the-fed-raised-rates-then-something-weird-happened">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-things-you-need-to-know-about-credit-scores">5 Things You Need to Know About Credit Scores</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/this-is-how-much-the-feds-interest-rate-hike-might-cost-you">This Is How Much the Fed&#039;s Interest Rate Hike Might Cost You</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-surprising-ways-bad-credit-can-hurt-you">15 Surprising Ways Bad Credit Can Hurt You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance federal reserve interest rates loans mortgages the fed Tue, 05 Apr 2016 09:00:07 +0000 Dan Rafter 1682551 at http://www.wisebread.com This Is How Much the Fed's Interest Rate Hike Might Cost You http://www.wisebread.com/this-is-how-much-the-feds-interest-rate-hike-might-cost-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-is-how-much-the-feds-interest-rate-hike-might-cost-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/woman_interest_rates_000058699918.jpg" alt="Woman learning how much the fed&#039;s interest rate hike might cost her" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>As expected, the Federal Reserve raised its benchmark interest rate today, <a href="http://www.bloomberg.com/news/articles/2015-12-16/fed-ends-zero-rate-era-signals-4-quarter-point-2016-increases">ever so slightly</a>, for the first time since 2006, before the economy crashed in 2008. The Fed hasn't done this since the economic meltdown largely to encourage consumers to continue to borrow, even as the economy struggled.</p> <p>Consumers who needed to borrow money for cars or homes, for instance, enjoyed historically low interest rates. Now that the Fed has boosted its federal fund rate, those low rates will rise, at least by a little. Consider mortgage interest rates. The Freddie Mac Primary Mortgage Market Survey in early December found that the average interest rate on a 30-year fixed-rate mortgage loan stood at 3.93%. This rate was an even lower 3.16% for 15-year fixed-rate loans.</p> <p>These are historically low rates. Before the economic crash, interest rates of 6% or 7% on 30-year fixed-rate mortgage loans were considered good. This is likely going to pain many borrowers who have little experience with a world in which interest rates are higher, said Michael Brady, president of Generosity Wealth Management in Boulder, Colorado.</p> <p>&quot;There is a whole generation of borrowers who think that these low interest rates are the norm,&quot; Brady said. &quot;They don't understand what these rates used to be like. We have become used to interest rates decreasing. We will have to adjust our way of thinking about rates.&quot;</p> <h2>Mortgage Interest Rates to Rise?</h2> <p>The higher mortgage rates that will come after the Fed rate hike will make life more expensive for borrowers. Even a small increase in mortgage rates can make a significant impact in your monthly mortgage payment.</p> <p>Say you take out a $200,000 30-year fixed-rate mortgage loan today with an interest rate of 3.9%. Your total monthly payment will be about $943, not including what you'd pay for property taxes and homeowners insurance.</p> <p>But if the interest rate on that same loan jumps to 4.7%, your monthly payment &mdash; again not including taxes or insurance &mdash; will rise to about $1,037. That's a difference of about $94 every month, or about $1,100 a year.</p> <p>The higher interest rates might also make it more difficult for you to qualify for a home loan. That's because higher rates equal higher monthly payments. You might have to choose a smaller home than you would have if interest rates didn't jump.</p> <h2>A Hurt on All Borrowers</h2> <p>When Brady says that borrowers will lose when interest rates rise, it's because mortgage loans aren't all that will become more expensive. So will auto loans, personal loans, and small business loans.</p> <p>&quot;When interest rates decrease, the costs to borrow for car loans, credit cards, and mortgages all become cheaper,&quot; Brady said. &quot;Now we are talking about the opposite, so the things we saw get cheaper will become more expensive.&quot;</p> <p>If you want to buy a car, that tiny 1.9% interest rate might soon jump. If you want to expand your small business and you need a loan to do so? Expect your monthly loan payments to jump as soon as interest rates rise.</p> <h2>Credit Card Debt Gets Even Worse</h2> <p>It's never a smart idea to carry credit card debt. But once the Fed raises its rate, carrying credit card debt will get even more expensive.</p> <p>Expect the interest rates attached to credit cards, already high, to get even higher. Most consumers today carry cards that come with variable interest rates. These rates can change according to <a href="http://www.wisebread.com/9-reasons-why-the-us-economy-is-kicking-the-worlds-butt">what is happening in the economy</a>. If the Fed raises its rate, credit card providers will boost yours, too.</p> <p>This can be a tough financial blow. Say you have credit card debt of $5,000 at an interest rate of 15.8%, and you make the minimum required payment of $200 every month. It will take you 10 years and six months to pay off that debt, if you don't make any new purchases with that card.</p> <p>But if the interest rate on that same debt rises to 21.2%, it will take you 12 years and four months to pay it off.</p> <h2>A Bit of Good News?</h2> <p>It's not all bad news. If you have money saved in CDs or savings accounts, you should see higher returns once the Fed raises its rate. Investing in new bonds and other fixed-income investments will also become more attractive.</p> <p>Since the Fed lowered rates, the interest rates on CDs and savings accounts have been at historic lows. The FDIC reported that the national average rate on savings accounts was a paltry 0.06% as of November 16. Expect that figure to rise &mdash; and the interest you earn on your savings to increase, too &mdash; if the Fed does indeed raise its federal fund rate this December.</p> <p><em>How will you deal with the end of the era of super cheap credit?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="http://www.wisebread.com/this-is-how-much-the-feds-interest-rate-hike-might-cost-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fed-raised-rates-then-something-weird-happened">The Fed Raised Rates — Then Something Weird Happened</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-manage-your-money-during-a-spousal-separation">How to Manage Your Money During a Spousal Separation</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/never-borrow-money-for-these-5-buys">Never Borrow Money for These 5 Buys</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/reach-your-money-goals-faster-with-a-simple-naming-trick">Reach Your Money Goals Faster With a Simple Naming Trick</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/whats-the-best-way-to-get-out-of-debt">What&#039;s the Best Way to Get out of Debt?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance borrowers debt federal reserve loans raise interest rates the fed Wed, 16 Dec 2015 22:00:05 +0000 Dan Rafter 1619704 at http://www.wisebread.com 3 Reasons the Fed Is Keeping Rates Low (And What It Means for You) http://www.wisebread.com/3-reasons-the-fed-is-keeping-rates-low-and-what-it-means-for-you <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-reasons-the-fed-is-keeping-rates-low-and-what-it-means-for-you" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/cash_wad_000075381955.jpg" alt="Learning why the Fed is still keeping rates low " title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The Federal Reserve has been keeping the benchmark short-term interest rate at record lows since the financial crisis in 2008. The near-zero rates are about to bust, economists say, but not until the economy shows certain signs of recovery that are so far yet-to-be-seen. Read on for our roundup of reasons why the first interest rate hike in nine years is yet to come &mdash; and what it means for you.</p> <h2>1. We Still Need the Stimulus</h2> <p>The Fed was so confident in the nation's job gains and overall economic growth at the start of 2015, that Fed Chair Janet Yellen's <a href="http://www.cnbc.com/2015/07/10/fed-chair-janet-yellen-interest-rate-hike-to-come-later-this-year.html">eagerness to raise interest rates</a> was almost palpable. But the state of the U.S. economy has since gone stagnant. While the Fed still envisions sizable growth in the near future &mdash; the kind that could spawn higher rates &mdash; the results just aren't coming in yet. The economy still needs the amount of stimulus the central bank is providing.</p> <p>For folks on Main Street, that stimulus is important. Cheaper borrowing means consumers can spend more easily, even when times are tough. For businesses, it means conditions are ripe to expand and hire new workers. But when rates finally do begin to rise, borrowing will become more expensive, which in some cases could limit job growth.</p> <p>&quot;Based on my outlook, I expect that it will be appropriate at some point later this year to take the first step to raise the federal funds rate and thus begin normalizing monetary policy,&quot; Yellen said in July. &quot;I want to emphasize that the course of the economy and inflation remains highly uncertain, and unanticipated developments could delay or accelerate this first step.&quot;</p> <h2>2. Full Employment Remains Elusive</h2> <p>We're inching closer to full employment, but we're not quite there yet. What the Fed is waiting for, generally speaking, is for the unemployment rate to drop below 5%. Right now it's hovering about a tenth of a percentage point above that. When it drops, the labor market will strengthen, which will lead to price increases and wage growth. Those factors, and others, will eventually push inflation higher, creating <a href="http://www.wsj.com/video/feds-dudley-discusses-jobless-rate-and-full-employment/58AC9E47-16E1-4BFD-BAEA-D3B0EB02E012.html?utm_source=feedburner&amp;utm_medium=feed&amp;utm_campaign=Feed%3A+wsj%2Fvideo%2Fnews+(WSJ.com+Video+-+News)">prime conditions for a rate increase</a>.</p> <p>Full employment is achieved when all eligible workers who want to find a job are able to do so.</p> <p>&quot;Key measures of hourly labor compensation rose at an annual rate of only around 2% through most of the recovery,&quot; Yellen said. &quot;More recently, however, some tentative hints of a pickup in the pace of wage gains may indicate that the objective of full employment is coming closer into view.&quot;</p> <h2>3. Domestic Spending Is Dropping</h2> <p>Domestic spending is the lifeblood of the U.S. economy, especially now as the nation moves toward recovery. But right now <a href="http://money.cnn.com/2014/01/27/news/economy/spending-obama/">domestic spending is dropping</a>, and that weighs heavily on economic growth. Low domestic spending can be good because it helps cut the deficit. But it also means that everyday Americans can easily feel the pinch. Transportation subsidies, funding for Head Start, and money for national parks are examples of some of the first things to drop. All told, spending on domestic programs has been on the decline since 2010, and is on track to reach the lowest level in more than 50 years by 2023.</p> <p>The deficit hit a high point in 2009 at nearly 10% of the overall size of the economy. It has been in decline every year since. When the deficit does start to rise again, however, it will be due in part to the expected rise in interest rates.</p> <p><em>What are you doing to take advantage of historic low interest rates?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/brittany-lyte">Brittany Lyte</a> of <a href="http://www.wisebread.com/3-reasons-the-fed-is-keeping-rates-low-and-what-it-means-for-you">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/15-personal-finance-calculators-everyone-should-use">15 Personal Finance Calculators Everyone Should Use</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fed-raised-rates-then-something-weird-happened">The Fed Raised Rates — Then Something Weird Happened</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-ways-to-pick-the-bank-thats-right-for-you">7 Ways to Pick the Bank That&#039;s Right for You</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-countries-where-banks-pay-crazy-interest-rates">10 Countries Where Banks Pay Crazy Interest Rates</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Economy employment federal reserve interest rates loans low rates stimulus Tue, 20 Oct 2015 17:17:01 +0000 Brittany Lyte 1591946 at http://www.wisebread.com What QE2 Could Mean for Ordinary Americans http://www.wisebread.com/what-qe2-could-mean-for-ordinary-americans <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-qe2-could-mean-for-ordinary-americans" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/money_10.jpg" alt="Money" title="Money" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>The words &ldquo;quantitative easing&rdquo; tend to make the eyes glaze over. But this pending economic maneuver could have a real and significant impact on households nationwide.</p> <p>The Federal Reserve announced in early November its plan to purchase $600 billion in Treasuries in an attempt to stimulate growth and job creation. This will mark the second time in three years the Fed has turned to quantitative easing, as the measure is known.</p> <p>This second round, often referred to as QE2, has sparked controversy among economists and political leaders. More quantitative easing will lower long-term interest rates and, at least in theory, bolster business&rsquo;s access to credit. Borrowing money, whether for business capital expenditures or for a homeowner refinance, should become easier.</p> <p>At the same time, another round of quantitative easing will weaken the dollar. That will help make American exports cheaper, but it could also send commodity prices soaring.</p> <h3>Another Go-Round</h3> <p>The first round of quantitative easing (from late 2008 through spring 2010) is cited as one the turning points that helped pull back the economy from the brink. The Fed purchased about $1.7 billion in mortgage debt and Treasuries through this past March.&nbsp;</p> <h3>Impact on American Families</h3> <p>For most consumers, talk of quantitative easing and increased inflation is more likely to spur yawns than careful consideration. And that&rsquo;s understandable. Part of the problem is that economists and politicians alike have done a poor job of explaining what it all might mean for the average American.</p> <p>Here&rsquo;s a look at a few ways households and individual consumers may be affected by another round of quantitative easing, for better and worse:</p> <h3>Lower Interest Rates, at Least for Now</h3> <p>Quantitative easing is <a href="http://www.currencies.com/qe2/">designed to keep interest rates low</a> while spurring inflation. Home buyers and homeowners have enjoyed record-low interest rates for months. They&rsquo;re likely to trend even further downward, making it easier for consumers to refinance their mortgages or to even purchase new homes. The problem is that if inflation spins out of control, the Fed will likely reign it in by raising interest rates.</p> <h3>Decreased Purchasing Power</h3> <p>A weaker dollar is going to mean that commodities like oil and food will cost more. At the same time, Americans aren&rsquo;t earning more money than they were six or 12 months ago. In essence, that loaf of bread or basket of corn will require more dollars than it did before QE2 set in.</p> <h3>Bigger Banks and Bottom Lines Benefit</h3> <p>QE2 is really geared toward pushing big banks and investors to spend. The general concept is that the purchasing of government bonds &ldquo;should push investors into riskier assets &mdash; such as stocks and corporate bonds &shy; &mdash; and raise their value,&rdquo; according to the <a href="http://blogs.wsj.com/economics/2010/11/03/qa-on-qe2-what-a-fed-move-would-mean/"><em>Wall Street Journal</em></a>. This is a period of &ldquo;easy money.&rdquo; But there&rsquo;s typically little to no impact on the average consumer&rsquo;s savings and money market accounts.</p> <h3>Will It Work?</h3> <p>The Fed reiterated its commitment this week to a second round of quantitative easing. The central bank has already purchased more than $114 billion in Treasuries since mid-November.</p> <p>Economists are split on what this second round will accomplish.&nbsp;It&rsquo;s unclear whether this rolling injection of cash into the economy will lead to job creation and temper unemployment. In the short term, it&rsquo;s certainly likely to raise the tempers of some ordinary consumers as they face the prospect of doing more with less.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/chris-birk">Chris Birk</a> of <a href="http://www.wisebread.com/what-qe2-could-mean-for-ordinary-americans">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-is-quantitative-easing-anyway">What is &quot;Quantitative Easing&quot; Anyway?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-fed-raised-rates-then-something-weird-happened">The Fed Raised Rates — Then Something Weird Happened</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/save-money-with-a-dependent-care-tax-credit-and-fsa">Save Money with a Dependent Care Tax Credit and FSA</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/federal-reserve-cuts-the-discount-rate">Federal Reserve cuts the discount rate</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News family finances federal reserve interest rates quantitative easing Mon, 20 Dec 2010 13:00:09 +0000 Chris Birk 393133 at http://www.wisebread.com What is "Quantitative Easing" Anyway? http://www.wisebread.com/what-is-quantitative-easing-anyway <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-is-quantitative-easing-anyway" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/quantitative.jpg" alt="Quantitative Easing" title="" class="imagecache imagecache-250w" width="250" height="157" /></a> </div> </div> </div> <p>Recently, the news is abuzz with the term &quot;quantitative easing.&quot; What is it anyway and how does it affect you?</p> <p>Quantitative easing is the act of central banks injecting the economy with cash in every conceivable way. In response to the financial collapse and the ensuing recession, central banks around the world used every tool at their disposal to increase the money supply. The US Federal Reserve has been extremely proactive in coming up with innovative solutions to increase the amount of capital available to banks, increase the money supply, and prevent <a href="http://www.wisebread.com/all-about-deflation">deflation</a>. These &quot;creative&quot; solutions fall under the umbrella term &quot;quantitative easing,&quot; although the US Federal Reserve has attempted to distinguish its strategy by phrasing it as &quot;credit easing.&quot;</p> <p>Basically, quantitative easing is a monetary policy where central banks &quot;print&quot; money and introduce this newly created wealth into the money supply by purchasing securities on the open market. The banks from which these securities are purchased then have additional capital beyond their reserve requirements that they can loan, invest, or horde for themselves. Quantitative easing is usually employed when the federal funds rate is at or near 0% because there is no possible way to lower this rate.This results in the Federal Reserve expanding its balance sheet. In the past couple years, quantitative easing has often been in the news as the Federal Reserve agreed to buy billions of dollars worth of government bonds, mortgage bonds, and other securities.</p> <p>The intended short-term result of quantitative easing is to increase the money supply and stimulate the economy. By purchasing government bonds on the open-market, the Federal Reserve can lower interest yields, which in turn lowers the interest on new debt, potentially encouraging companies and individuals to consume more credit and increase spending.</p> <p>Conversely, quantitative easing lowers the deposit rate, or the rate banks pay depositors. A lower deposit rate reduces the benefits of holding savings, and encourages depositors to consume their deposits or seek other investments. The end result of quantitative easing is intended to benefit&nbsp; consumers. Decreased borrowing costs and an expanded money supply is supposed to increase demand and consumption. Once demand starts increasing, confidence should return to businesses and hiring will resume.</p> <p>Modern economic theory argues that deflation is one of the worst possible economic outcomes and quantitative easing is supposed to prevent that. The idea being that if deflation takes hold and prices continue to fall, consumers will delay purchases, assuming that prices will be cheaper in the future. Delaying purchases decreases demand and leads the economy on a downward spiral. Furthermore, quantitative easing reduces the pressure on banks by increasing their available capital and increasing demand for loans.</p> <p>The biggest risks associated with quantitative easing can occur when the folks in charge introduce too much cash with their policies and hyperinflation results. If there is a great increase in the money supply, then real goods, commodities, and services can drastically increase in price while savings and the value of the dollar are destroyed. Creditors will lose real return on their investments and the effect on the country's credit could be disastrous. These problems can be exacerbated by politicians who see government debt being purchased and use the opportunity to increase government spending without increasing taxes.</p> <p>The bottom line is that quantitative easing can be a double-edged sword. In the case of Japan, quantitative easing did not work and deflation ensued for years.&nbsp; This could also happen in the United States. What do you think? Should central banks around the world continue their policy of quantitative easing to battle deflation and spur borrowing? Have you taken advantage of the lower interest rates?</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/xin-lu">Xin Lu</a> of <a href="http://www.wisebread.com/what-is-quantitative-easing-anyway">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/what-qe2-could-mean-for-ordinary-americans">What QE2 Could Mean for Ordinary Americans</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-mortgage-crisis-solution">A Mortgage Crisis Solution</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-the-end-of-net-neutrality-could-impact-your-wallet">How the End of Net Neutrality Could Impact Your Wallet</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/you-did-what-with-my-ssn">You did WHAT with my SSN?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Financial News banks federal reserve quantitative easing Fri, 13 Aug 2010 14:00:08 +0000 Xin Lu 204446 at http://www.wisebread.com Recession Journal Part IV: The Double-Dip Trip http://www.wisebread.com/recession-journal-iv-could-this-be-the-last-entry <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/recession-journal-iv-could-this-be-the-last-entry" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/magic_beans.jpg" alt="magic beans" title="magic beans" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Have you ever been broke as Jack's magic beans?&nbsp;</p> <p>You know, broke as when said beans dropped on the floor because he brought home magic beans instead of food?</p> <p>Have you ever been that hard up for cash but anticipating a reprieve?</p> <p>Oh you have.</p> <p>Okay, well, do you remember how you felt when that direct deposit finally hit or you heard that the check really was in the mail? You felt better right?</p> <p>Do you remember the euphoria of going from broke to liquid, if only temporarily, and did the money start to burn holes in your pockets on account of you spending it already in your mind before you withdrew cash, wrote a check or swiped a card?</p> <p>If you're familiar with these questions and can answer them honestly then you are a living breathing symbol of the economies of 1980-83 and 2007-2010.</p> <p>Let me explain. For the past 18 months or so, most of us have &quot;felt,&quot; broke, if only broken in spirit by the slew of continual bad news. In point of fact a great number of us were even broke literally if we or someone on whom we depended loss their job or home.</p> <p>But now, oh but now folks, we have a potential reprieve &mdash; that's the good news. As of the start of September, everything from consumer confidence and expenditures, oil prices, retail sales and industrial output capacity is moving in a positive direction.</p> <p>Financial market indices, as a result are up, buoyed by the psychological boosts these numbers bring. The S&amp;P 500 index, for instance, hit an 11-month high the week of September 7, 2009.</p> <p>And even the one down arrow is shaping out to garner a big thumbs-up as a recently-released Labor Department jobless claims last week fell to the lowest level since July.</p> <p>But should we start spending in our minds now? Should we stimulate the economy and not let the terrorists win now?</p> <p>Well that's up for debate but the truth is that we still don't know if a lift out of our lovely recession will be a &ldquo;V&rdquo; recovery for victory over being broke as beans or a &lsquo;W&rdquo; recovery &mdash; as in wait and see because we&rsquo;re not out of the woods yet. Who knows, maybe we might even be in for a VW recovery. Wouldn't that bug you out. Marinate and then laugh if you care to.</p> <p>So my good people, the &quot;VW&quot; or just &quot;W&quot; recovery, represents an up-down-then-up again recessionary trajectory, one that despite current indicators could be in the offing.</p> <p>What to do?</p> <p>Well, in a cursory web search using the search terms &quot;Double-Dip Recession,&quot; I found Richard Marcus, associate professor of managerial economics and finance at the University of Wisconsin-Milwaukee and I knew that school was in.</p> <p>And I knew that he has a handle on such things as money and the like. And I knew that he would likely pick up the phone himself and given the often genteel mannerisms of fly-over state residents, I knew he would actually talk to me if I explained who I was and why I was calling and that his work would help further an eventual point that I would be getting to.</p> <p>Dr. Marcus likens the current economic situation to the extended double-dip recessionary period of 1980 to 1983. Back then, as it is now, there was major government spending and the recession was exacerbated by a severe credit crunch as well as monetary policy from the Federal Reserve that made the downturn more protracted.</p> <p>Over static on my cell, Marcus posited that if forecasters are to use history as a guide, the 1980-83 downticks turned around with sustained spending, a tax cut and more &ldquo;helpful monetary policy&rdquo; and that nowadays if we want sustained change we should act accordingly.</p> <p>Marcus says that while there is every indication that the current recession will soon be over, this economy is sort of like a swimmer underwater that comes up from air and then goes below again, only to come back up.</p> <p>I like that he used wide-open metaphors that could apply to dips. He was doing my bidding (insert cartoon villain laugh here).</p> <p>&ldquo;I&rsquo;d said before that I thought there&rsquo;d be some upturn but I also said that the period 2007 to 2010, will likely take as long to right itself as that time in the 1980s,&rdquo; Marcus told me. &ldquo;This is because you have a tax increase that will kick in to slow the economy and eventually even $800 billion in stimulus money will teeter out. Plus the Federal Reserve has doubled the monetary base and they have to be more restrictive.&rdquo;</p> <p>Indeed despite positive economic data, the government&rsquo;s current fiscal and monetary bend and that of the early 80s are two sides of the same coin in that policies in both eras seem, as Marcus puts it, &ldquo;contractionary in nature.&rdquo; Plus Marcus added that he expects overall unemployment to continue to rise, &ldquo;likely going to 10 percent or above before it&rsquo;s all over.&rdquo;</p> <p>And now back to you folks. How do you feel? Do you feel confident? Are you ready to pick up those broken beans and throw caution to the wind, take some risks, buy some goods, services or memories?</p> <p>Or are you forever changed due to the emerging consumer ethos of frugality, caution and selectivity as the country emerges from the most pervasive downturn since the Great Depression?</p> <p>&lt;&gt;Well consider the thoughts of yet another economist, Nouriel Roubini, from NYU, whom I probably could not have reached by phone to talk to in a short period of time even if I had one of those long-reaching <em>thingamobobs</em> that grab objects even while you're sitting down.</p> <p>Roubini is known in many circles as &ldquo;Doctor Doom,&rdquo; and he has said that going forward, even if the recession ends, there might not be enough spending in this or other countries to offset the wicked drop in consumer demand from &quot;over spenders&quot; in the United States and Britain.</p> <p>Yes the U.S. and U.K., which in recent years have become both home to some of the world&rsquo;s most conspicuously consuming people, and also two of the countries hit hardest by all this crunchy credit.</p> <p>So if you're thinking that a turnaround is here and your money is burning a hole in your pocket and you want to spend as you did in headier times, think again, double dip yourself before you trip yourself.</p> <p>Whether the recession is finally over or not, remember when you were broke as a bean and remember how you felt.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/recession-journal-iv-could-this-be-the-last-entry">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/capital-one-whats-in-your-envelope">Capital One: What’s In Your Envelope?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/possible-protections-for-credit-card-holders">Possible protections for credit card holders</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-journal-v-mind-the-gap">Recession Journal V: Mind, The GAP</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/the-bailbondsman-approach-part-deux-fiscal-stimulus-no-gonna-workie">The Bailbondsman Approach Part Deux: Fiscal Stimulus No Gonna Workie</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-journal-vi-its-over-any-questions">Recession Journal VI: It&#039;s OVER!!!!!!!!!!!! Any Questions?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Consumer Affairs consumer affairs federal reserve recession Fri, 11 Sep 2009 15:04:09 +0000 Jabulani Leffall 3593 at http://www.wisebread.com Recession Journal Part III: How Low Can We Go and When Will We Get There? http://www.wisebread.com/how-low-can-we-go-and-when-will-we-get-there <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-low-can-we-go-and-when-will-we-get-there" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000008682804XSmall.jpg" alt="" title="" class="imagecache imagecache-250w" width="250" height="188" /></a> </div> </div> </div> <p>As a business blogger, high-finance business journalist, business man and one who minds his business &ndash; who pretends to know what he's talking about &ndash; I pretty much always answer &quot;stay in bonds,&quot; when called upon for investment advice.</p> <p>I hate giving it so I don't. I tend to just pose more questions, as I do in all discourse, objectively presenting many sides of the equation. So people can make up their own minds</p> <p>After all there are two sides to every story and then there's the truth.</p> <p>So I thought I'd utilize the ever-changing world of telecommunications, in a figurative sense of course, to try to get at the most pressing question these days: when will this crappy economy turn up?</p> <p>The answer is, well, when it bottoms out.</p> <p>But when is that?</p> <p>Hold on let me check (ring ring).</p> <p>Hello economic bottom? Economists and forecasters called and left a message, again.</p> <p>They said they&rsquo;re still looking for you and you&rsquo;re still hard to find.</p> <p>Therefore indicators for recovery from and continued length of the current recession remain inconclusive.</p> <p>They also said, &quot;We hope to see you soon because you&rsquo;re neither here nor there.&quot;</p> <p>Indeed, the more economic information that comes out, the more guesswork there is. As of July 17, jobless claims are up to 554,000 &ndash; a sum that is less than June numbers but still up versus 524,000 in the previous week, according to FactSet Economics.</p> <p>Also as of June, the national civilian unemployment rate rose to 9.5%, the highest it&rsquo;s been year-to-date and average hourly wages are also down compared to last year and last month. Additionally Federal government debt is up to $11.5 trillion as of the end of June opposed to $11.3 trillion at the end of May.</p> <p>Yet there are a few bright spots. Home sales, building permits and monetary supply, through historically low interest rates, are all up.</p> <p>So now we can breathe a little bit right?</p> <p>Well, not so much. Those figures are up while consumer confidence and industrial production output, as of the end of last month, are still down.</p> <p>Why the disparity among all the leading indicators? And what does a stoppage of declining figures mean vis-&agrave;-vis inclining figures in the future?</p> <p>Enter the Federal Reserve, which this week released its Beige Book survey to arrive at forecasts based on statistical and anecdotal economic evidence. In the report, the Fed said that most of its 12 regional bank districts are seeing a slower pace of economic decline for the months of June and July but didn&rsquo;t go so far as to predict a turn around.</p> <p>To the glass-half-full soothsayers, this comes as an early sign that the worst of the worst economic doldrums since the Great Depression is closer to coming to a halt and that thereafter an ascent of the proverbial bar graph of growth will emerge once again.</p> <p>Such are the sentiments Fed chairman Ben Bernanke, who, despite seeing personal his assets take a 30% decline in 2008, is bullish on the broader economy.</p> <p>Bernanke recently told Congress that the economy&rsquo;s contraction &ldquo;appears to have slowed significantly,&rdquo; with demand and production showing &ldquo;tentative signs of stabilization.&rdquo;</p> <p>He echoes other policy makers such as New York Fed Chief William Dudley, who predicted that a modest recovery in housing activity and car sales coupled with fiscal stimuli from the government would give the U.S. economy moderate growth in the second half of this year.</p> <p>Then in the same speech this week, Dudley turned around and said &quot;the balance of risks is still tilted toward weakness in growth and employment and not toward higher inflation.&quot;</p> <p>The only grain of certainty to be gleaned from cautiously optimistic policy makers and from the Beige Book is that neither provides any tangible signs of outright growth.</p> <p>For instance the Beige Book found that retail demand was &ldquo;sluggish&rdquo; in most areas, and that auto sales were &ldquo;mixed.&rdquo; Manufacturing was &ldquo;subdued, yet slightly more positive.&rdquo; Meanwhile, according to the survey, non-financial services businesses are &ldquo;largely negative with a few bright spots.&rdquo;</p> <p>Yeah that's clearly the sign of recovery right? (Pshhaw!)</p> <p>Lastly, the most telling indicator, bank lending, &ldquo;was stable or weakened further&rdquo; in most loan categories across all 12 Fed districts, with tightened credit standards in at least seven districts.&nbsp; It looks like finding that elusive V-shaped recovery as it relates to the current economic downturn is going to take a bit longer, despite some sporadic cheerleading and sparsely positive numbers.</p> <p>Plus one must take into consideration that financial firms are still digging out of holes, which means credit will remain tight and in Dudley&rsquo;s words, for the near-term still &ldquo;limit the pace of the recovery.&quot; &nbsp;</p> <p>Suffice it to say, policymakers, analysts, investment managers and consumers will all be calling again next week, next month and perhaps even next year, looking for you, economic bottom.</p> <p>Are you still there?</p> <p>Well folks it's not there right now, act accordingly.</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/how-low-can-we-go-and-when-will-we-get-there">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-ways-to-build-business-credit-when-youre-self-employed">5 Ways to Build Business Credit When You&#039;re Self-Employed</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-depression">Recession Depression</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/federal-reserve-cuts-the-discount-rate">Federal Reserve cuts the discount rate</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/when-should-you-say-no-to-those-who-want-to-borrow-money-from-you">When Should You Say No to Those Who Want to Borrow Money from You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance federal reserve lending Manufacturing US economy Fri, 31 Jul 2009 12:00:11 +0000 Jabulani Leffall 3447 at http://www.wisebread.com Oh noes! Inflation! http://www.wisebread.com/oh-noes-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/oh-noes-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/monetary-base-small.png" alt="Graph of monetary base showing recent surge" title="Graph of monetary base showing recent surge" class="imagecache imagecache-250w" width="250" height="150" /></a> </div> </div> </div> <p>The Wall Street Journal has an opinion piece by Arthur Laffer that shows a scary graph of the monetary base, which has surged enormously in the past year.&nbsp; He suggests that this is &quot;potentially far more inflationary&quot; than the monetary policies of the 1970s.&nbsp; I'm as worried about inflation as anybody, and agree that the Fed should already be taking steps to minimize it, but I think Laffer is off-base here.</p> <p>Here's a graph much like the one in the <a href="http://online.wsj.com/article/SB124458888993599879.html">Wall Street Journal opinion piece</a>, showing the recent spike in the monetary base.&nbsp; You can see a couple of earlier, much smaller spikes when the Fed took action in advance of Y2K and after 9/11.&nbsp; Scary, no?</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/monetary-base.png" alt="Graph of monetary base showing recent surge" /></p> <p>Except, here's a view of changes in the monetary base from 1984 to mid-2008 (i.e. until the recent spike), together with CPI inflation over the same period.&nbsp; Notice a strong correlation between changes in the monetary base and future inflation?&nbsp; No?&nbsp; Me neither.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/monetary-base-cpi-1984-2008_0.png" alt="Graph of monetary base and CPI from 1984 through mid-2008" /></p> <p>Okay, here's another.&nbsp; This is the M2 money supply versus CPI inflation from 1984 through mid-2008.&nbsp; To my eye, that at least shows some correlation--the money supply rises before inflation heats up and then drops when inflation drops.&nbsp; The correlation doesn't look so hot from 1995 through 2005, but we are starting to get a better picture of what happened then--the excessive money supply growth pumped up asset prices (the dotcom bubble), while globalization held down consumer prices.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/m2-cpi-1984-2008.png" alt="Graph of M2 money supply and CPI from 1984 though mid-2008" /></p> <p>So, what does that tell us?&nbsp; Maybe not a lot.&nbsp; But, if M2 money supply is of at least some use for prediction future inflation, here's another look--the same graph, but this time running up to the latest data available.&nbsp; The CPI rate has plummeted--the year-over-year change in prices actually going negative due to the combination of falling fuel prices, the financial collapse, and the recession.&nbsp; But look at M2--the rate of change there is hardly unprecedented.&nbsp; We saw similar spikes in the mid-1980s and then again when the Fed eased monetary policy in the wake of the dotcom crash.&nbsp; That is liable to lead to some inflation, but it's an ordinary risk of an ordinary rate of inflation--not some huge hyperinflationary catastrophe.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/m2-cpi-1984-2009.png" alt="Graph of M2 money supply and CPI from 1984 to the latest data available" /></p> <p>Now, I don't want to minimize the dangers of the surge in the monetary base.&nbsp; If that potential for money creation is realized as actual growth in the money supply, then we can kiss the dollar good-bye.&nbsp; But although the surge is unprecedented in its magnitude, there's actually a good example of the Fed managing a monetary-base spike without producing a catastrophe--the results of their actions in the run-up to Y2K.&nbsp;</p> <p>Concerned that the Y2K bug might take down the computers that ran the ATMs, the banks, and the communications networks that connected the banks, the Fed made sure that there was extra cash in the hands of the banks and extra reserves in the banking system, just in case.&nbsp; Then, when it turned out that nearly everyone had fixed all their important Y2K bugs, they drained the excess reserves.&nbsp; Here's a close-up of the monetary base and CPI during that period, showing no sign of wild swings in prices.&nbsp; That's not proof that we won't have a huge inflationary spike, but it does show that it's at least possible to have large swings in monetary base growth without adverse impact on prices.</p> <p><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/u203/monetary-base-cpi-1999-2001.png" alt="Graph of monetary base and CPI before and after Y2K" /></p> <p>I'm worried about inflation too; I just don't think the scary monetary base graph is the reason to be scared.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/oh-noes-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/inflation-is-going-away-for-a-while">Inflation is going away for a while</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stag-hyperinflation">Stag-hyperinflation?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/watch-out-for-surge-in-cpi">Watch Out for Surge in CPI</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/federal-reserve-cuts-the-discount-rate">Federal Reserve cuts the discount rate</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance cpi Fed Fed funds rate fed policy federal reserve inflation interest rates M2 monetary policy money money supply Fri, 12 Jun 2009 08:39:45 +0000 Philip Brewer 3257 at http://www.wisebread.com Stag-hyperinflation? http://www.wisebread.com/stag-hyperinflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/stag-hyperinflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/forest-pool.jpg" alt="Forest pool" title="Forest Pool" class="imagecache imagecache-250w" width="250" height="171" /></a> </div> </div> </div> <p>Stagflation, the bane of the 1970s, is pretty much the worst situation for ordinary folks.&nbsp; With the economy depressed, jobs are scarce for workers and profits are scarce for business owners.&nbsp; With entrenched inflation, everyone's savings are constantly eroding.&nbsp; The result is that nowhere is safe for your money:&nbsp; not cash, not your business, not the market.&nbsp; With the latest moves by the Fed, I fear we're facing a repeat--only it'll be worse this time:&nbsp; stag-hyperinflation.</p> <p>We know what produces inflation:&nbsp; excess growth in the money supply.&nbsp; This was a matter of some dispute back in the 1970s.&nbsp; In those days, many people thought that government deficits were the culprit--that when the government borrowed money and spent it on stuff, the &quot;excess&quot; demand bid up prices.&nbsp; The experience of the 1980s proved otherwise:&nbsp; Strong measures to hold the line on money supply growth by the Federal Reserve under Paul Volker brought inflation under control despite record deficits.</p> <p>Bringing money supply growth down to the level of economy growth will bring inflation to a stop.&nbsp; However, it will also produce a recession.&nbsp; (This is pretty much inevitable.&nbsp; The inflation, by producing the illusion of growth, will have fooled businesses into making unwise investments.&nbsp; When the growth fails to materialize, businesses that expanded will have to contract--which is exactly what a recession is.)</p> <p>Just as we understand inflation and recession, we also <a href="http://www.wisebread.com/all-about-stagflation">understand stagflation</a>.&nbsp; You get stagflation when you repeatedly try to bring inflation down, but then keep chickening out at the first whiff of recession.</p> <p>Unlike in the 1970s, our current spot of trouble was kicked off as an old-fashioned financial panic, which is a <strong>deflationary</strong> event.&nbsp; A year ago, I was worrying about inflation.&nbsp; (I wrote about <a href="http://www.wisebread.com/how-to-live-with-inflation">How to live with inflation</a> and <a href="http://www.wisebread.com/budgeting-in-a-time-of-inflation">Budgeting in a time of inflation</a> and <a href="http://www.wisebread.com/will-high-inflation-persist">Will high inflation persist</a>.)</p> <p>By October last year, though, I had figured out that the deflationary effects of the financial panic were going to squelch the inflationary effects of Federal Reserve policy.&nbsp; (I wrote a post called <a href="http://www.wisebread.com/inflation-is-going-away-for-a-while">Inflation is going away for a while</a>.)&nbsp; With economic activity plummeting, prices of global commodities fell as well.&nbsp; Consumers trying to pay off debts and boost savings kept a lid on prices of consumer goods as well.</p> <p>(As an aside, it's worth emphasizing that not all price increases are inflation.&nbsp; Inflation is the <em>money becoming less valuable</em>.&nbsp; Sometimes, though, prices go up for other reasons.&nbsp; Resource depletion makes key resources more expensive to produce, pushing up the prices of raw materials, and eventually the prices of everything made with those resources.&nbsp; Globalization pushes down the prices of things available in global trade, making things that are only available on local markets relatively more expensive.&nbsp; People's tastes change, producing changes in relative prices.&nbsp; All of these things can look like inflation, if all you've got to go by is price statistics.)</p> <p>The Federal Reserve is in a tizzy.&nbsp; They're terrified of deflation--money becoming <em>more</em> valuable--because the experience of the Great Depression shows that a deflationary collapse can not only bring down the whole economy but keep it down <em>for years</em>.&nbsp; Contrariwise, they know how to stop inflation.&nbsp; This asymmetric situation has prompted them to boost the money supply in <strong>an effort to create a modest amount of inflation</strong>.</p> <p>Normally, the Fed can create inflation no problem--they create additional bank reserves, the banks lend more money, the money supply goes up, and you've got your inflation.&nbsp; (It shows up in prices when people spend the borrowed money--prices get bid up because there's more money but no more stuff.)&nbsp; Just lately, though, this mechanism hasn't worked well, because the financial crisis has broken the transmission mechanism at the step of &quot;the banks lend more money&quot;--the banks are bust, so they're not lending, consumers are bust so they're not borrowing (and the ones who would borrow are poor risks for paying the money back), and businesses staring into the economic abyss are not borrowing either.</p> <p>Faced with that problem, the Fed has now brought out the big guns.&nbsp; Last week the Fed <a href="http://www.federalreserve.gov/newsevents/press/monetary/20090318a.htm">announced that it was going to buy</a> &quot;up to $300 billion of longer-term Treasury securities over the next six months.&quot;&nbsp; Because here's the thing--there's one entity that can and will do the necessary borrowing and spending to produce inflation:&nbsp; The US Treasury.</p> <p>That $300 billion, plus another $1.55 trillion spent on US government agency securities, are guaranteed to work their way through the economy and produce some inflation, pretty much ending the risk of deflationary collapse.</p> <p>The questions then become, &quot;How much inflation?&quot; and &quot;What next after that?&quot;</p> <h2>How much inflation?</h2> <p>Nobody knows.&nbsp; It's impossible to even guess.&nbsp; The Fed's governors and the presidents of the individual reserve banks do make projections (for what they're worth, they <a href="http://www.federalreserve.gov/monetarypolicy/fomcminutes20090128ep.htm">recently projected </a>inflation of 0.3% to 1.0% in 2009 and 1.0% to 1.5% for 2010), but their projections are no more accurate than anyone else's--which is to say not accurate at all.</p> <p>It's easy to say what they're trying to do.&nbsp; They're trying to offset the deflationary impact of the financial crisis.&nbsp; And, because they know how to stop inflation, they're willing to aim a bit high--they want to be sure that they're <strong>entirely</strong> offsetting the deflationary impact, and they're willing to risk an accidental inflationary surge.&nbsp; They view the downside risk in that direction as much smaller than the downside risk of an accidental deflationary spiral.</p> <p>The problem is that they could easily overshoot much too high, producing inflation on a scale that trashes the whole economy.&nbsp; (Inflation of just 10% wreaks drastic havoc with a modern economy.&nbsp; It becomes impossible to make any sort of long-term plan, because there's no way to know what the money will be worth a few years down the road.)</p> <h2>What next after that?</h2> <p>Yes, the Federal Reserve knows how to stop inflation--by causing a recession.&nbsp; Of course, we've already got a recession.&nbsp; Unfortunately, the process doesn't work in reverse:&nbsp; Being in a recession doesn't prevent the next round of inflation.</p> <p>What we're looking at now is ameliorating this recession with a burst of inflation, in the hopes that doing so will keep it from turning into a depression.&nbsp; At that point things can go one of three directions:</p> <ol> <li>The inflationary burst falls short and the deflationary spiral continues in earnest&nbsp; (The Fed's latest move signals that they'll do whatever it takes to prevent this scenario.)</li> <li>The inflationary burst is &quot;just right,&quot; halting the deflationary spiral without pushing inflation up to levels that threaten the economy.&nbsp; (This is what the Fed is trying to do.&nbsp; Let's all wish them luck.)</li> <li>The inflationary burst is excessive, producing a serious bout of inflation.&nbsp; (There really isn't an upper bound here.&nbsp; Just a few percent does serious harm to the economy, but 10%, 50%, 10,000% and more have all been seen in various places around the world, over and over again since the invention of paper money.&nbsp; In 1979 and 1980 the US saw inflation rates over over 1% per month, which is plenty to wreck individual household budgets.)</li> </ol> <p>If the inflationary burst turns out to be excessive, the Fed will reduce the rate of growth in the money supply to bring it back down, but we know what that does--it produces a recession.&nbsp; Maybe that recession will be different from this one--specifically, maybe it won't come hand-in-hand with a collapsing financial system--in which case maybe the Fed will stick to its guns and grind the inflation rate back down low enough that its economic effects are minor.&nbsp; But I don't see much reason for optimism.&nbsp; First, we'd have to fix the financial system between now and then--and there hasn't been much progress on that front so far.&nbsp; Second, a solid majority of the policy-setting Federal Open Market Committee members would have to grow a pair, and I'm not too hopeful about that either.&nbsp; The upshot is that I foresee inflation followed by a half-hearted attempt to rein in money supply growth, followed by more inflation.</p> <p>And, to bring things full circle, we know where that leads.&nbsp; If you want stagflation, all you need to do is try to bring down inflation and then cave in at the first signs of recession.&nbsp; Kick the inflation rate up nice and high first and you can legitimately call it stag-hyperinflation.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/stag-hyperinflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-4"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/inflation-is-going-away-for-a-while">Inflation is going away for a while</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-the-last-person-to-leave-america-please-turn-out-the-light">Could the last person to leave America please turn out the light.</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-live-with-inflation">How to live with inflation</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/preparing-for-a-recession">Preparing for a Recession</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/more-than-just-inflation">More than just inflation</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance depression Economy Fed federal reserve Great Depression hyperinflation inflation recession stagflation Tue, 24 Mar 2009 16:15:48 +0000 Philip Brewer 2970 at http://www.wisebread.com Inflation is going away for a while http://www.wisebread.com/inflation-is-going-away-for-a-while <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/inflation-is-going-away-for-a-while" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/rocky-beach.jpg" alt="Rocky beach" title="Rocky Beach" class="imagecache imagecache-250w" width="250" height="315" /></a> </div> </div> </div> <p>For a decade, starting in the mid-1990s, the Federal Reserve kept interest rates too low and expanded the money supply too quickly.  Their theory was that, as long as consumer prices were stable, they must not be creating too much money.  We now know that they were wrong.</p> <p>Confused by the way globalization held down consumer prices, the Fed printed us up a metric truckload of inflation.  It showed up in house prices, stock prices, oil prices, grain prices--pretty much all prices except the prices of stuff made in low-wage countries and imported into the United States.  Unfortunately, those prices are a major component of the CPI--and particularly of the <a href="/the-core-rate-is-not-an-evil-conspiracy">&quot;core&quot; CPI</a> (consumer prices excluding food and energy).</p> <p>Starting in late 2006 and accelerating in late 2007, though, that inflation started spilling into consumer prices as well.</p> <p>The US (both the government and individuals) had borrowed huge amounts of money.  Between that and the rising inflation, holders of dollars were beginning to think that maybe they didn&#39;t want all their cash in dollars. That put downward pressure on the value of the dollar, which pushed up the prices of just about everything (because the US imports just about everything).  Prices soared--oil, wheat, milk, corn, anything traded globally got more expensive:  This was a decade of excessive money creation by the Fed finally showing up in prices.</p> <p>Just as this was happening, though, the Federal Reserve seemed to lose its mind.  Instead of raising interest rates to curb inflation, it started cutting rates.  Pointing to the &quot;core&quot; rate of inflation, which barely budged, the Fed suggested that deflation was a bigger worry than inflation.</p> <p>The verdict is still out on that, but there&#39;s some new evidence that the Fed is right.</p> <p>First, prices of global commodities are falling.  In just the past few months:</p> <ul> <li><a href="http://tonto.eia.doe.gov/dnav/pet/hist/wtotworldw.htm">Crude oil down 28%</a> </li> <li><a href="http://www.ers.usda.gov/Data/Wheat/YBtable18.asp">Wheat down 24%</a> </li> <li><a href="http://future.aae.wisc.edu/data/monthly_values/by_area/21?tab=prices">Non-fat dry milk down 14%</a> </li> </ul> <p>So, what&#39;s going on?  There are several forces at work, and they&#39;re currently feeding back into one another.</p> <h2>US as a safe haven</h2> <p>The same people who had decided that, in view of the US trade deficit and budget deficit, they didn&#39;t want to hold so many dollars have changed their tune.  If the economy is going to melt down, maybe the US isn&#39;t such a bad place to have some wealth.  The US has a strong tradition of sound banks and other financial institutions.  In addition, it has seemed much more willing these past few weeks to take aggressive action to protect its financial system than some other countries. </p> <p>With more demand for the dollar, it has been rising against foreign currencies.  A stronger dollar means lower dollar prices for global commodities.</p> <h2>Leverage</h2> <p>During the huge spike in commodities, many investors piled on, trying to make money on what was obviously a long-term upward trend.  Many of them did so with borrowed money--and many thought that the dollar would be the cheapest currency to borrow, because dollar interest rates were low and the dollar was falling.</p> <p>Now, with the dollar rising, many of those investors are moving to unwind those transactions--selling their commodities so they can pay off their dollar debts now, before the dollar moves even higher.  That pushes commodities down and the dollar up.</p> <h2>Economic slowdown</h2> <p>Less business activity means less demand for basic commodities, leading directly to lower prices.</p> <p>Producers of basic commodities will obviously see lower profits.  Other businesses are facing lower profits as well, even though some of their inputs are shaping up to be cheaper, simply because of falling demand due to the general economic slowdown.</p> <p>Notice that these forces emphasize one another--any sort of economic stress makes the safe-haven aspect of the US look more attractive, anything that makes the US look more attractive raises the value of the dollar, and a higher dollar pushes down the price of commodities, producing more economic stress, and so on.</p> <h2>What about inflation?</h2> <p>Just as higher commodity prices looked like <a href="/more-than-just-inflation">inflation</a>, lower commodity prices look like deflation.</p> <p>I think there&#39;s a long-term trend toward higher commodity prices, simply because rising demand inevitably runs up against limited resources--oil, fresh water, arable land, etc.  Because of that, I think declines in commodity prices are going to be temporary.  Even so, prices might stay down for a considerable period, if the economy remains stressed for a considerable period.</p> <p>I was one of those who, a few months ago, thought the Fed had lost its mind.  Cutting interest rates just as inflation was spiking up to generational highs seemed like exactly the wrong policy.  I&#39;ve changed my mind.  I certainly don&#39;t know if the Fed&#39;s policy is the right one, but I no longer think it&#39;s an insane one.</p> <p>Vast amounts of &quot;money&quot; have simply disappeared:  the illusory wealth of the housing bubble, the mortgage-backed securities based on it, and the paper assets based on those.  The destruction of that &quot;money&quot; is hugely deflationary.  The Fed is trying to create enough money to offset that destruction.  The problem is that they have no way to know how much money to create.  They&#39;re walking a tightrope, with a deflationary depression on one side and hyperinflation on the other.</p> <p>The Fed is clearly inclined to err on the side of inflation, simply because they know how to cure inflation.  Only incredible luck would produce a soft landing at this point.  The Fed is aiming to produce a modest amount of inflation--confident that, if it manages that, it can bring the inflation back down once the economy is out of danger.  In the short term, though, I think the risk of inflation has fallen quite a bit, simply because so many people want to hold dollars.</p> <p>Since the Fed is trying to create some inflation, I don&#39;t expect this situation to persist for long--I wouldn&#39;t get rid of your inflation hedges--but don&#39;t enter into transactions expecting inflation to bail you out, and don&#39;t be surprised if we see some of the price hikes of the past few months suddenly reversed.</p> <p>It&#39;s a scary situation, and it&#39;s not very comforting to realize that the central bankers are just as scared as we are.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/inflation-is-going-away-for-a-while">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stag-hyperinflation">Stag-hyperinflation?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-live-with-inflation">How to live with inflation</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/more-than-just-inflation">More than just inflation</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/will-high-inflation-persist">Will high inflation persist?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance central banks commodities depression Fed federal reserve inflation recession Wed, 08 Oct 2008 15:14:20 +0000 Philip Brewer 2502 at http://www.wisebread.com Will high inflation persist? http://www.wisebread.com/will-high-inflation-persist <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/will-high-inflation-persist" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/expected-inflation.png" alt="Graph of expected inflation" title="Graph of expected inflation" class="imagecache imagecache-250w" width="250" height="177" /></a> </div> </div> </div> <p>Every financial calculation that you make is influenced by your expectations for future inflation:  how much to borrow, where to put your savings, and whether your last raise was a reason to celebrate or to start looking for a better job.  Even small decisions, like whether to buy a couple extra cans of tomato paste, are affected.  No dollar amount or interest rate is good or bad, except when compared to inflationary expectations.</p> <p>Among the people who care most deeply about inflationary expectations are the people at the Federal Reserve who set short-term interest rates.  The reason they care is simple:   As long as inflation expectations are low, a brief shot of inflation through the economy does only moderate harm.  That changes once people start to expect higher inflation.  If that happens, getting back to a normal low-inflation environment requires a higher and longer-lasting level of pain throughout the economy.</p> <p>The Fed uses various kinds of data to get a handle on inflationary expectations.  Recently, two measures have started to give very different signals.</p> <p>One way to estimate inflationary expectations is to subtract the yield of inflation-indexed Treasury notes from that of ordinary Treasury notes.  The difference ought to be the inflation rate that investors are expecting.  The green line in the graph shows that calculation for 5-year Treasury notes.  The expected inflation rate is a bit above 2%, and has actually been dropping lately.</p> <p>Another way to gauge inflationary expectations is to ask people what inflation rate they&#39;re expecting.  The University of Michigan does that every month.  The red line in the graph shows their results.  Until about a year ago, the survey result pretty much tracked along slightly above the &quot;Treasurys minus TIPS&quot; calculation (higher, but by less than a percentage point).  Since about April of last year, though, the University of Michigan survey has spiked up, and the difference between the two estimates now stands at more than 2.5 percentage points.</p> <p>The implied rate from the TIPS is an estimate of inflation for the next 5 years, so one reading of the difference is that people expect the current surge of inflation to be temporary.  The series of Fed rate cuts since September last year strong suggests that the Fed thinks that inflation will come back down.  Fed policy makers have said as much:</p> <blockquote><p>Survey measures of households’ expectations for year-ahead inflation rose further in early April, but survey measures of longer-term inflation expectations moved relatively little.</p> <p>-- <a href="http://www.federalreserve.gov/newsevents/press/monetary/20080521a.htm">Minutes of Federal Open Market Committee, April 29-30, 2008</a></p> </blockquote> <p> I think it will be worth keeping an eye on that &quot;Treasurys minus TIPS&quot; calculation.  If the 5-year expectation of inflation begins to rise like the 1-year expectation of inflation, expect the Fed to take strong action.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/will-high-inflation-persist">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/oh-noes-inflation">Oh noes! Inflation!</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/could-trump-bring-higher-interest-rates-and-inflation-consider-these-money-moves">Could Trump Bring Higher Interest Rates and Inflation? Consider These Money Moves</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/inflation-is-going-away-for-a-while">Inflation is going away for a while</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/stag-hyperinflation">Stag-hyperinflation?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-critical-money-mistakes-people-make-in-their-40s">7 Critical Money Mistakes People Make in Their 40s</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance expectations federal reserve inflation Sun, 25 May 2008 21:07:20 +0000 Philip Brewer 2123 at http://www.wisebread.com Possible protections for credit card holders http://www.wisebread.com/possible-protections-for-credit-card-holders <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/possible-protections-for-credit-card-holders" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/credit-cards_1.jpg" alt="Credit cards" title="Credit Cards" class="imagecache imagecache-250w" width="250" height="178" /></a> </div> </div> </div> <p>The Federal Reserve has proposed some new rules to protect people from a list of abusive lending practices.  The changes aren&#39;t in effect yet, and may not actually go into effect.  It&#39;s worth looking at the proposals, though, to understand what&#39;s been going on just lately.  If you haven&#39;t been paying attention, you probably have no idea what the credit card companies can legally do to you.</p> <p>The things that would be prohibited would be:</p> <h2>Increasing the rate on a pre-existing balance</h2> <p>At the moment, there are pretty much no rules about this.  Your card agreement probably says how they calculate the rate--but it also says that they can change the agreement at any time, including the part on how to calculate the rate.  Many card agreements also provide for you to &quot;decline&quot; to accept changes--but if you use the card after they send out the notice of changes, that&#39;s the same as accepting the new agreement.  And some cards don&#39;t even offer that protection--they can raise the rate for any reason, or for no reason at all, and there&#39;s nothing you can do about it except pay the new rate until you manage to get the debt paid off.</p> <h2>Applying payments to maximize the interest charges</h2> <p>Your credit card agreement says how they&#39;ll apply any payment that you send in.  It matters, because parts of your balance are at different rates.  If you read the details, things are often set up to pay off low-rate parts of the debt first, leaving you paying on high rate debt for as long as possible.  Under the new rules:</p> <blockquote><p>Banks would be required to give consumers the full benefit of discounted promotional rates on credit cards by applying payments in excess of the minimum to any higher-rate balances first, and by providing a grace period for purchases where the consumer is otherwise eligible.</p></blockquote> <h2>Imposing interest charges using the &quot;two-cycle&quot; method</h2> <p>The &quot;two-cycle&quot; method is a set of rules for calculating the interest owed in such a way that you don&#39;t get any &quot;grace period&quot; if you don&#39;t pay your card off in full every month.  If you carry a balance all the time, it doesn&#39;t matter.  But if you <strong>usually</strong> pay your card off, but <strong>occasionally</strong> take an extra month to get back to zero, the two-cycle method can very nearly double the interest you pay.</p> <p>The rules would also require that banks give card holders a &quot;reasonable&quot; amount of time to make payments.  It used to be that card holders got almost 30 days--basically, you had until the day they printed out your next bill.  Credit card companies, though, have been shortening the grace period, especially for their riskier customers.  For some cards, it&#39;s gotten to the point where you really have to stay on top of your bills every day, in order not to be constantly late on your payment.</p> <p>Of course, the only sensible thing to do with credit cards is to pay them off every month.  Credit cards are a great <strong>payment mechanism</strong>, but a terrible way to borrow money.  Everybody knows that.  And these new rules wouldn&#39;t really offer much to the people who do use their credit cards to borrow money.  </p> <p>What these new rules would do is protect people who fail to run an error-free bill-paying and agreement-reading system.  As things stand right now, someone who pays every bill in-full, but who is only 99% successful at paying on-time, could easily end up owing hundreds of dollars in fees, penalties, and interest.  These rules would ease up some of the worst of the &quot;gotcha&quot; effect.  (And it certainly seems that some banks have been changing their rules specifically to set their customers up to make occasional small errors--and turn those errors into big fees for the bank.)</p> <p>The rules are open for public comment.  No doubt the big banks will be commenting.  They&#39;ll have statistics that show that customers who make a late payment are much more likely to default than customers who are never late.  Maybe a few consumers will comment about the basic unfairness of agreements that the credit card companies can change at any time.</p> <p>Links to the detailed rules and on how to comment are in the Federal Reserve&#39;s press release on <a href="http://www.federalreserve.gov/newsevents/press/bcreg/20080502a.htm">rules to prohibit unfair practices</a>.</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/possible-protections-for-credit-card-holders">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/do-we-really-need-help-in-getting-more-debt">Do we really need help with getting more debt?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/can-your-spending-patterns-affect-your-credit">Can Your Spending Patterns Affect Your Credit?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/new-credit-card-legislation-buzz-interview-wall-street-journal">New Credit Card Legislation Buzz: An Interview with Wall Street Journal’s Mary Pilon</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/banks-manipulate-your-transactions-may-charge-you-1750-overdraft-fee">Banks Can Manipulate Your Transactions, Then Charge You 1750% Overdraft Fee</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/top-seven-reasons-why-i-use-my-credit-card-for-everything">Top 7 Reasons Why I Use My Credit Card for Everything</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Consumer Affairs Credit Cards bank regulations credit card agreements credit cards Fed federal reserve regulations Tue, 20 May 2008 15:56:53 +0000 Philip Brewer 2106 at http://www.wisebread.com The Bailbondsman Approach Part Deux: Fiscal Stimulus No Gonna Workie http://www.wisebread.com/the-bailbondsman-approach-part-deux-fiscal-stimulus-no-gonna-workie <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-bailbondsman-approach-part-deux-fiscal-stimulus-no-gonna-workie" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/Fiscal Stimulus_0.jpg" alt="" title="This is what you get baby 0:00" class="imagecache imagecache-250w" width="106" height="106" /></a> </div> </div> </div> <p>This is perhaps the first time in the history of blogdom, that someone will have used &quot;Uncle Ben,&quot; in two different contexts in back-to-back blogs, that is unless you&#39;re a rice blogger and you have a real uncle named Benjamin.</p> <p>The &quot;Uncle Ben&quot; I refer to is our new Chairman of the Board of Governors for the Federal Reserve Ben Bernanke. Even while supporting the stupid -- I mean <a href="/bushs-economic-stimulus-package-what-will-you-get-back">Fiscal Stimulus Package</a> that he had to support because the guy shilling for it gave him his job -- rebate that the government is giving us, he warned that any stimulus that &quot;comes too late will not help support economic activity in the near term, and it could be actively destabilizing if it comes at a time when growth is already improving.&quot;</p> <p>It&#39;s the first part of that thought that I find particularly striking. This $300 to $600 to &quot;up to&quot; $1,200 that some of us will be getting sometime in May or June or in many cases, never, is like the &quot;Micky and Pals&quot; brand Band-Aid over the gaping gun shot wound. Take these few C-notes, head off to Wal-Mart, then we&#39;ll be able to get these people whose houses are foreclosed back into those houses and everything will be dandy.</p> <p>Wrong. Dead Wrong</p> <p>If anything, tax rebates should be put into individually assigned savings accounts that we&#39;re not allowed to touch and then the amount should be able to collect interest for us. The account will then have a balance that the government can borrow against to put in place real safeguards for the economy and environmental stability like a viable healthcare system, infrastructure improvements, respectable national transportation, a bailout perhaps of the common man and not the common investment bank. I know it&#39;s pinko communist talk but these are ideas that in the long run would save us the money we&#39;re spending and would be put to better use than a new I-pod to offset $10 Trillion in rogue credit default sway and derivatives contracts, still floating around Wall Street.</p> <p>The reason Pay Day Loans are legal and thriving, the reason credit card debt is up, the reason people now find themselves on the opposite side of the threshold from homes they couldn&#39;t afford in the first place is temporary fixes. Stopgaps and living paycheck to paycheck is a sure way to not be able to leave anything to your kids and find yourself working extra hours or another job entirely because you&#39;re deeper into debt than you were before. </p> <p>The government is essentially giving us money it doesn&#39;t have so we can spend money that some of us don&#39;t have and that&#39;s ours in the first place. Moreover, the one thing they don&#39;t tell the people is that for every person getting a check, there may be people who owe and we&#39;ll see their rebates eaten up, or people who haven&#39;t filed in a while and won&#39;t be getting a dime. There are also certain income stipulations, which determine if you are even eligible. So suddenly the $150 billion goes down to maybe $100 billion and with the money and resources spent processing these meager checks, maybe down to $95 billion.</p> <p>As I&#39;ve espoused before and will emphasize again - as I&#39;m wont to do in a blog suited for such a purpose - it&#39;s necessary for us to think differently about our wants and needs and our purposes and the real-world applications that accompany them. The government is telling you to live beyond your means so you can continue to support it living beyond its means.</p> <p>Conservation is not just an environmental buzzword, it applies to our pockets as well. If we were all to decide to put that money in the bank instead of right back into the machine, maybe that would send a message to our leaders that we want to be a country of makers again and not spenders, a country of prudence and not waste.</p> <p>It starts with all of us as individuals. Now go check your mailbox and check yourself while you&#39;re at it. </p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/jabulani-leffall">Jabulani Leffall</a> of <a href="http://www.wisebread.com/the-bailbondsman-approach-part-deux-fiscal-stimulus-no-gonna-workie">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-5"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/recession-journal-iv-could-this-be-the-last-entry">Recession Journal Part IV: The Double-Dip Trip</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/possible-protections-for-credit-card-holders">Possible protections for credit card holders</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-things-you-need-to-know-about-the-federal-reserve">4 Things You Need to Know About the Federal Reserve</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-vile-craigslist-scams-to-watch-out-for">8 Vile Craigslist Scams to Watch Out For</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-being-uninformed-costs-you-money">How Being Uninformed Costs You Money</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Consumer Affairs Ben Bernanke federal reserve Fiscal Stimulus Savings Rate. Sun, 13 Apr 2008 07:43:06 +0000 Jabulani Leffall 2002 at http://www.wisebread.com